Adrian Ashton: Is the honeymoon for CICs over?

I’ll begin by outing myself (again) on the subject of Community Interest Companies (CICs) – I’ve personally never been a big fan of them for all sorts of reasons that include:

their not offering any features that are truly unique,

are generally not advantageous in securing income,

usually allow very weak governance to emerge,

offer little security for their Members and Directors in light of their regulators’ powers to overrule them…

(all of which are detailed in previous blog posts), BUT I have supported some clients to gain this ‘hallowed status’ and am always pleased (really!) when an enterprise proves me wrong on why it’s the best form for them to adopt.

However, I’m wondering of the wider world may be catching up with me now in light of trending data published by the CIC Regulator themselves that suggests CICs may be increasingly seen as a ‘bad apple’ by those who set them up, and those they engage with…

You see, I’m a geek in oh, so many things, but particularly in the governance of organisations of all types, and as a result, find the annual reports from regulatory bodies fascinating reading. And despite my personal misgivings about the CIC form, I’ve always said that the CIC Regulator published perhaps the best designed and most accessibleannual report of all the regulators. And this year I decided to dig into some of the stats they publish in a little more detail –

I looked at the period 2011/12 to 2013/14 (3 years) to see what trends there might be amongst CICs that are emerging and it’s not an encouraging picture:

as context, over the last 3 years, the total numbers of CICs have increased by 44%;

but last year, over 10% of all CICs on the register were wound up – a figure that’s also growing year on year (and has floated around the 9% mark in previous years);

and the biggest reason (70%) for CICs being wound up is that they’ve been struck off the public register by Companies House for failing to meet their associated statutory legal duties! – which amongst other things means that the Directors of them may subsequently face difficulties with being able to act as Directors or Trustees of other organisations as well as against their own personal credit ratings;

So – is all well in the land of CICs? More are currently registered every year than are being wound up, but the trends in each suggest that most CICs currently don’t make it past 5 years. And with a growing trend of CICs failing to fulfil their basic statutory legal responsibilities, it’s perhaps illustrative that many are adopting this legal form on the basis of poorly informed advice and guidance. It also perhaps suggests that CICs are approaching a plateau in terms of their prevalence, and are not in fact the ‘magic bullet’ to solving the sectors’ woes and concerns that many have presented them as being? (but as with all things, I’m open to being proved wrong of this…)